Incorporation in Delaware is insufficient to create proper venue

A recent Federal Circuit ruling has created some leeway for companies looking to challenge the choice of venue in patent cases. In its Dec. 2, 2011, ruling in In re Link_A_Media Devices Corp., the Federal Circuit ruled that the mere fact that a defendant is incorporated in a given state doesn’t necessarily mean that that state is the proper venue. While the state of a company’s incorporation is still a significant factor for consideration (see “Motion Denied”), the question of whether it’s a convenient venue, as opposed to an improper venue, is equally as important.

The case centers on a patent dispute between Link_A_Media Devices Corp. (LAMD), a California-based technology company with offices also in Minnesota, the U.K. and Japan, and Marvell Inter- national Ltd., a Bermuda-based holding company. Unhappy with being sued in Delaware due to the inconvenience of the venue, LAMD submitted a motion to transfer the venue to the Northern District of California, where LAMD maintains its principal place of business.

In its motion, LAMD outlined that “Delaware had no discernable connection to the case beyond it being LAMD’s state of incorporation.” Almost all of LAMD’s 130 employees work in its California headquarters—none work in Delaware. As a result, LAMD argued that it would be more convenient for the witnesses and parties to try the case in the Northern District of California.

Marvell countered LAMD’s request to change venues, asserting that its choice of forum should be entitled to substantial deference because Delaware was selected for a legitimate reason. “LAMD is incorporated in Delaware and, thus, cannot claim surprise at being brought into the Delaware courts for litigation,” Marvell told the court.

Upon review in Delaware district court, Judge Sue Robinson affirmed Marvell’s choice of venue. She performed an analysis of the situation, citing the 3rd Circuit’s decision in Jumara v. State Farm Ins. Co. that established a “very broad” basis to analyze transfer requests. Judge Robinson concluded that not only was LAMD not a regional company based on its global presence, but that the convenience of the parties and the location of the documents and records were outdated factors. Therefore, she placed little emphasis on those factors and based her decision more squarely on LAMD’s location of incorporation.

Still unhappy with the venue, LAMD requested a writ of mandamus to vacate the district court’s order.

Careful Considerations

On appeal, the Federal Circuit took issue with Judge Robinson’s decision and issued the writ. The court decided that Judge Robinson assigned too much weight to the plaintiff’s choice of forum—particularly when the forum the plaintiff selected was not the plaintiff’s home forum. This point is driven home by the fact that Marvell’s affiliate, Marvell Semiconductor, where the named inventors of the patents-in-suit are employed, is located just three miles from LAMD in Santa Clara, Calif.

“That was the anomaly,” says Choate Hall & Stewart Partner Michael Bunis. “It’s one thing if Marvell sued LAMD and they picked Delaware because they, too, were physically located in Delaware, but neither of the parties had a physical presence there.”

Next, the circuit court ruled that the defendant’s state of incorporation is not dispositive, and that Judge Robinson should have gone further to look at the factors related to deciding the right forum to litigate the claim.

John Reed, a partner at DLA Piper, says it’s possible the Federal Circuit may have ruled differently had Judge Robinson done a detailed analysis of all of the factors, but adds that the true impact of the Federal Circuit’s ruling is yet to come.

“The impact of this case remains to be seen,” he says. “What it’s going to require is an opinion where somebody does a full-blown analysis and the Federal Circuit can review it based upon the facts.”

In-house Insights

Despite the relative straightforwardness of the case, it remains especially relevant to legal departments.

“It’s pertinent to in-house counsel who are enforcing their patents—the fact that they may sue a Delaware corporation in Delaware isn’t any longer a guarantee that the case is going to stay in Delaware if the only factor is that the company is incorporated there,” Reed says.

The Federal Circuit’s decision affirms that courts won’t simply just go down a checklist of factors to see whether certain boxes are checked, but must examine where the witnesses are located, where the discovery needs to take place and where is the most convenient forum to litigate the claim.

“Before this, the common wisdom was that if you were a Delaware corporation and you were sued in a patent case in Delaware, it would be very difficult to get it transferred to a more convenient forum,” says Deanne Maynard, a partner at Morrison & Foerster and petitioner in the case. “This signals that that’s no longer the case, and that the Federal Circuit is going to supervise whether or not cases are being wrongly kept in an inconvenient forum.”

Maynard adds that the case has additional significance for cases filed in the Eastern District of Texas. “In recent years, these types of writs have been successfully brought when district judges in the Eastern District of Texas have refused to transfer patent cases out of Texas, but there hadn’t been one successfully brought in a similar situation in Delaware,” she says.

Because the Federal Circuit controls appeals in IP cases, this standard will have to be applied everywhere.